Licensing means renting or leasing of an intangible asset under a licence agreement. A licensing agreement authorises a company which markets a product or service (a licensee) to lease or rent a brand from a brand owner who operates a licensing program (a licensor). Examples of intangible assets include a song (e.g. Peter Allen’s ‘I Still Call Australia Home’), a character (Superman), a name (Trump), or a brand (The Ritz-Carlton).
The advantages of a business licensing its brands include:
- Revenue – Issuing a licence provides instant and guaranteed revenue for the licensing company. The licence agreement normally includes an upfront capital payment plus ongoing licence fees based on the profits of the licensee business.
- Brand Recognition – The brand becomes more recognised, visible and valuable as it is associated with more products and customers. The licensees will spend marketing dollars building the brand.
- Provides branded products to its customers that complement the licensee’s products without the licensee having to produce those products themselves. For example, when Apple launched the iPod they decided not to manufacture the headphone and docking stations and instead chose to have a licensee make the products.
One of the major disadvantages to issuing a licence is that it creates competition as a licence allows a competitor the right to use the same production processes you use. A licensing company may attempt to limit competition by limiting the scope of the licence as much as possible. For example, the licence may contain geographic, time or quantity restrictions that protect the market of the licensing company.
Businesses considering licensing their brands require expert advice. In addition, the licensing agreements will need to be drafted by a solicitor specialising in brand licensing.